On Thursday, BMO Capital maintained its Market Perform rating on Alcoa (NYSE:AA) while increasing the stock's price target to $37 from $35. The adjustment follows Alcoa's first-quarter earnings for 2024, which surpassed expectations, prompting the firm to revise its near-term estimates upward.
The aluminum producer's recent financial performance has led to a more optimistic valuation, with the new target based on 6.5 times the firm's projected 2025 enterprise value to EBITDA ratio, as well as approximately 5.5 times spot-based estimates. Alcoa's strong position to capitalize on the ongoing positive momentum in aluminum prices was noted as a contributing factor to the improved outlook.
BMO Capital highlighted Alcoa's proactive steps towards enhancing profitability, although the pace of these improvements may be more gradual than initially anticipated. Among the strategic moves is the acquisition of Alumina (OTC:AWCMY) Limited, which is expected to close in the third quarter of 2024. However, the situation with the San Ciprián facility remains unresolved.
The analyst pointed out that while there are several positive aspects to Alcoa's current situation, they believe that these factors are already accounted for in the stock's current valuation. Despite the price target increase, the Market Perform rating suggests that the firm sees the stock as fairly valued at its current levels.
InvestingPro Insights
As Alcoa (NYSE:AA) navigates the market following its first-quarter earnings beat in 2024, InvestingPro data and insights offer additional context for investors considering the stock's performance.
With a market capitalization of $6.38 billion USD, Alcoa presents a complex picture. The company's revenue for the last twelve months as of Q1 2024 stood at $10.48 billion USD, reflecting a decrease of 11.4%. This aligns with BMO Capital's cautious stance on the speed of profitability enhancements.
Despite the challenges, Alcoa's stock has shown resilience in the short term, with a strong return of 14.57% over the last month and an even more impressive 33.38% over the last three months. This could be indicative of the market's response to the company's strategic moves and potential to benefit from the current aluminum price dynamics.
Still, the company's gross profit margin remains low at 7.28%, underscoring the concerns raised by BMO Capital regarding the gradual nature of profitability improvements.
InvestingPro Tips highlight that analysts predict Alcoa will be profitable this year, which may provide a basis for the stock's recent price uptick. However, it's important to note that the company has not been profitable over the last twelve months. For investors looking for a deeper dive into Alcoa's financials and future prospects, InvestingPro offers additional tips, with a total of 7 available. Utilize the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription for more in-depth analysis and insights.
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